Representative market data weighted to reveal insights. A multifaceted view of actual vs. expected claims

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1 Critical illness insurance in Israel The Munich Re Biometric Critical Illness Study 2010

2 A unique biometric Critical Illness study Munich Re has conducted a comprehensive study of critical illness insurance business in Israel. The project, the first such detailed ana lysis of the Israeli maret conducted by a re insurer, is part of a series of biometric studies aimed at elevating pricing excellence to a new level. As demonstrated by previous analyses we have done with our clients, the insights gained through such research are beneficial for the insurance companies and their policyholders. This unique new study is a valuable source of up-to-date nowledge on critical illness riss for the maret. It will provide primary insurers with a sound basis for strategic decisionmaing, product development and premium calculation.

3 About the study Representative maret data weighted to reveal insights Findings A multifaceted view of actual vs. expected claims The study of critical illness business in Israel looed at data from five major companies in the maret over a fiveyear period from 2004 to The figures are pooled in this paper to ensure confidentiality. On an individual level, companies participating in this study receive a more detailed analysis of their own data in comparison to the pooled maret data. To place the findings in perspective, we compared actual claims results with our expected results based on ris models. In some instances, this pointed to the need for further research and greater differentiation within data sets. In others, it revealed opportunities for targeted adjustments in premiums. In total, about 900,000 policies were analysed, representing an exposure of around 2.1 million policy years and including around 6,000 claims. We considered the first incidence of critical illness only, leaving possible second covers out of the analysis (because of scarcity of second claims). We gathered data for each individual critical illness, in cluding cancer, myocardial infarction, stroe, heart valve surgery, coronary artery bypass surgery and other, less significant, illnesses. Although the limited volume of data captured regarding certain diseases is insufficient for sound statistical analysis e.g. heart valve surgery occurred in only 1% of claims by insured women the figures for the major illnesses that mae up 90% of critical illness claims present a reliable and realistic picture. These results also reflect worldwide critical illness trends, with cancer and myocardial infarction maing up the vast majority of cases and stroe coming in a distant third. Insured men and women are analysed separately. However, for the purpose of this paper the two genders are aggregated wherever no significant difference was found. In addition to the number of claims in relation to total policies, we examined claims data weighted according to sum insured. To gain insights into the results of underwriting and possible selection or antiselection effects, we considered the incidence of critical illness events in relation to duration since policy issue. Munich Re also looed at the impact of smoing status on the claims experience. Claim distribution by critical illness In women, cancer represents 88% of all claims, whereas the share of cancer claims in men is 45%. Myocardial infarction accounts for 5% of claims in women and 36% in men. Stroe is in third place, with 4% of the claims in women and 6% in men. These three illnesses form about 90% of all critical illness claims in both genders (see Figure 1). Figure 1: Distribution of critical illness claims Males Cancer 45% MI 36% STR 6% CAS 6% HVS 5% Other 2% Females Cancer 88% MI 5% STR 4% CAS 0% HVS 1% Other 2% Cancer remains the no. 1 cause of critical illness claims. Myocardial infarction is a second major cause in the male cohort. Source for all graphs: Munich Re

4 The Big 3 critical illnesses Actual vs. expected claims Figure 2: The Big 3 critical illnesses For cancer, the actual number of claims is higher than expected in men and lower in women on an aggregate level. The actual claims experience for myocardial infarction and stroe is significantly lower than expected for both genders (see Figure 2). Cancer 103% Ml 73% Stroe 59% Actual males Expected males % = Actual/expected Actual females Expected females Cancer 96% Ml 79% Stroe 46% % = Actual/expected Age-related findings Results for claims by age indicate that actual incidences are lower than expected in insured persons over the age of 50 for all diseases pooled together. This finding is the basis for a premium adjustment for all ages with a significant reduction in the older ages (see Figure 3). Figure 3: Age Total actual/expected: 78% Total actual/expected: 88% Sum insured Figure 4: Sum insured The ratio of actual claims to expected claims is less favourable for lower sums insured than for higher sums insured. This could suggest a need to review underwriting practices for lower-sum policies (see Figure 4). Higher sums insured 77% Lower sums insured 101% Higher sums insured 86% Lower sums insured 101%

5 Selection effect Figure 5: (Anti)selection effects A loo at pooled claims categorised by policy year of occurrence revealed no significant impact of underwriting. Though almost negligible in the pooled statistics, an antiselection effect was significantly more pronounced in the data of more than half of the participating insurance companies, which was largely offset by selection effects experienced by other responding companies. This suggests a discrepancy in underwriting or claims practices between insurance companies (see Figure 5). year 1 80% year 2 89% year 3+ 81% Actual males Expected males % = Actual/expected Actual females Expected females year 1 88% year 2 97% year 3+ 89% % = Actual/expected Smoers and non-smoers Figure 6: Smoing status Actual cancer-related claims are significantly higher than expected for male non-smoers. The unfavourable actual/ expected ratio for non-smoers could be the result of applicants misstatements with regard to the smoer status (see Figure 6). Non-smoer 130% Smoer 75% Non-smoer 99% Smoer 85% Product types Figure 7: Product type Our claims analysis according to the three critical illness product types (prepayment, additional payment, stand alone) confirms past experience: the actual/ expected ratio is least favourable in the case of standalone critical illness policies. The other types prepayment plans and additional payment covers show a satisfactory ratio of actual to expected claims (see Figure 7). Additional payment 87% Standalone 96% Prepayment 81% Additional payment 89% Standalone 102% Prepayment 99%

6 Conclusions A basis for targeted strategic consulting Comparison with the UK We compared the marets in Israel and the UK, looing at the frequency of the top five critical illness events in the first policy year among the insured population in relation to the general population an indication of a selection effect. Compared to the UK, Israel does not show the same underwriting impact on critical illness business. Furthermore, between the ages of 30 and 50, we see an antiselection effect in the Israeli insured population (see Figure 8). This biometric study performed by Munich Re shows that cancer remains the number one cause of critical illness claims for both genders in the Israeli maret, with myocardial infarction also playing a major role among males. Overall the results of the study confirm the accuracy of our expected claims projections in critical illness business but also offer us valuable new insights in critical illness insurance. These findings will give us and our clients an opportunity to target specific maret segments, develop new products and improve our pricing, underwriting and claims-handling standards. We wish to than all participating companies for their cooperation. In face-to-face consulting, respondents can profit from the in-depth information we have gathered on their companies in comparison to the pooled maret data. Figure 8: Israel and the UK in comparison Claims frequency insured population/general population 140% 120% 100% 80% 60% 40% 20% 0% Age First policy year Unisex Israel UK Munich Re welcomes your feedbac: Should you have any comments or questions regarding our Biometric Critical Illness Study 2010, please contact Mr. Jürgen Scharlach. Jürgen Scharlach Head of Client Management Middle East Life Tel.: jscharlach@munichre.com Israeli maret data from the study compared with UK data. The impact of underwriting is significantly higher in the UK. Source: A critical review Report of the Critical Illness Healthcare Study Group, The Staple Inn Actuarial Society, 2000

7 Objectives To gain deeper nowledge and further enhance our CI ris expertise As the leading critical illness reinsurer in Israel with a strong commitment to the Israeli maret, Munich Re sees to continuously update and improve maret nowledge and ris insights. To ensure ris-adequate pricing Our business partners can rely on our accurate and fair pricing a sound basis for business in a spirit of partnership. To better understand ris assessment challenges With this study, Munich Re and our partners gain not only in-depth nowledge on pricing, but insights into other aspects such as selection effects as well. To provide primary insurers with a solid basis for strategic decision-maing By analysing a client s own data in comparison to the maret, Munich Re can help identify opportunities and support product development processes. To identify areas requiring further research Each study provides answers while at the same time raising questions. We are there to support our partners in finding out more than a study can initially reveal and to put the nowledge into practice.

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